The main issue presented within the memo involves the current salary of the present CEO (James) and whether it is in line with standard salaries for CEOs within companies of the same size and within the same market as PDQ.
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The author of the memo contends that based on the performance of the company, the current average salary rate for CEOs within the industry which is $300,000 and the “supposed” fact that workers at the company dislike James that replacing the current CEO is a matter of great urgency given that his lackluster performance and high salary are detrimental towards the growth and performance of the company.
- The CEO’s salary is too high
- During his tenure the company has experience significant drops in performance
- Workers at the company supposedly do not like him
- He is rich, thus he would not feel the need to work hard
- He has a low level of performance
- In order to make the company better a new CEO would be needed
There are several ambiguous phrases that piqued my interest within the memo. The first emphasized the current wealth of the CEO as detrimental towards his performance. The second emphasized on the need to replace him despite the lack of sufficient evidence and third involved an argument involving incentivized performance and compensation which was highly ambiguous given that various studies state otherwise.
The memo explains that it is usually the case that the average salary for a CEO within a company of PDQ’s size is $300,000 and that due to the financial crisis most companies have actually frozen or cut back on CEO salaries due to lower profits.
While this particular aspect of the memo is valid, the memo takes a strange turn stating that James must be fired on the basis of his supposedly lackluster performance (which the memo does not present sufficient evidence on), the fact that he is wealthy and would supposedly not work for the best interests of the company (similarly has no basis), the fact that the workers at the company supposedly dislike him (has not been confirmed with verifiable facts from the union) and on the fact that he has a high salary which is not commensurate with industry standards (considering the fact that it was based on a contract it should not be an issue).
Fallacies in Reasoning
While the memo was quite extensive in its use of a variety of statistics in order to properly frame its arguments, it made several assumptions that lacked sufficient evidence to actually prove to be accurate. First off, towards the end of the memo the author makes the following assumption regarding salaries and compensation: “everyone in the Human Resources field knows that “pay for performance” is the most effective compensation method”.
The creation of this particular statement is versed in such a way so as to connote a certain degree of factual appropriateness to what was stated. This means that it was created to make people assume that “pay for performance” is the most effective method by stating that it was a well known practice within the field of human resources.
In reality studies such as those by Goh & Gupta (2010) have shown that pay for performance is actually one of the least effective methods of compensation (Goh & Gupta, 2010). This finding has been backed up by several other studies and shows that the author of the memo was presenting an assumption as a fact.
Examining the Evidence
The author of the memo connects the failing performance of the company with the supposedly lackluster performance of the CEO. This particular argument in light of the circumstance is rather strange given the fact that the drop in company performance coincides with the 2008 financial crisis which resulted in considerable performance drops for nearly all corporations within the U.S.
The memo fails to show any solid proof of corporate mismanagement by the CEO and merely presents an assumption based on data which has been proven to be outside of the control of the CEO. Not only that, it was stated early on that the increase in the CEO’s salary was based on a pre-negotiated contract which should void any arguments regarding subsequent salary increases.
While there was sufficient evidence to justify the lowering of the CEO’s salary given the financial crisis, there is insufficient evidence to justify firing him. Based on an evaluation of the presented evidence, it can be seen that it is severely lacking in terms of actually showing that the current CEO of the company should be fired and is indicative of a lack of sufficient foresight and research into the performance of the CEO and largely consists of pure speculation and assumptions.
The memo in certain sections elaborates on the need to replace the CEO with someone that is more hardworking and willing to do what is necessary. This creates the idea that the present CEO is not hardworking and is in fact lazy. This is rather ambiguous given the fact that the author of the memo fails to show any solid evidence regarding this particular fact and is evidence of a certain dislike by the author for the CEO given that he continually emphasizes firing James.
The statistics are definitely deceptive since the CEO had pre-negotiated salary increases that were not dependent on company performance. Not only that, the drop in company performance was not due to mismanagement but was a direct result of the financial crisis. The CEO should actually be commended for ensuring that the company’s performance loss was kept to a minimum.
Information that has been omitted
The most obvious information that has been omitted is whether or not the CEO has been doing a good job despite the adverse circumstances that the company finds itself in as a result of the financial crisis.
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There is no information whatsoever indicating factors relevant to what initiatives he has successfully employed, what cost savings measures were carried out during his tenure, how has he helped to reduce the losses of the company and how has he responded to the adverse market situation. All of this information is relevant given the arguments being presented by the author but it is in fact missing which creates a certain degree of ambiguity regarding the fairness of the way in which the CEO is being portrayed.
Reasonable Conclusion that can be Derived
Based on the way in which the memo was created which emphasized on the supposedly lackluster performance of the CEO without sufficient evidence and the way in which the arguments were formulated to emphasize several negative qualities about the CEO and the need to fire him despite the fact that this was not the original intent of memo shows that the Senior HR manager has negative feelings about James and is actively attempting to have him removed despite the insufficient evidence proving the CEO’s inadequacy.
Goh, L., & Gupta, A. (2010). Executive Compensation, Compensation Consultants, and Shopping for Opinion: Evidence from the United Kingdom. Journal Of Accounting, Auditing & Finance, 25(4), 607-643.